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Union Pacific (UNP) Could Be a Great Choice

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Union Pacific in Focus

Based in Omaha, Union Pacific (UNP) is in the Transportation sector, and so far this year, shares have seen a price change of -20.51%. The railroad is paying out a dividend of $1.3 per share at the moment, with a dividend yield of 2.6% compared to the Transportation - Rail industry's yield of 1.37% and the S&P 500's yield of 1.78%.

In terms of dividend growth, the company's current annualized dividend of $5.20 is up 21.2% from last year. Over the last 5 years, Union Pacific has increased its dividend 4 times on a year-over-year basis for an average annual increase of 12.93%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Union Pacific's current payout ratio is 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.

UNP is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $11.55 per share, representing a year-over-year earnings growth rate of 16.08%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, UNP presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).


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